The following article discusses session three in the IR Global Virtual Series on 'Tax Efficient Inbound Investment: Tax Structures for Cross-Border Acquisitions
USA – TS One of the advantages within the parameters we are working in, is that there is plenty of flexibility as to the type of entity you can use, whether that is a limited liability company or a corporation. The choice of jurisdiction is also important, depending on what you are looking for in terms of discretion and not disclosing ownership.
One thing I should mention is that our corporate tax rates have been reduced recently from 35 per cent to 21 per cent. We have not seen an effect on inbound investment just yet, but it has been a benefit domestically.
USA – JS The US has always been very welcoming to foreign investors; they can invest in almost anything a US citizen can.
With proper planning, we can help investors to avoid, minimise or defer taxes for a period of time, but that does require planning well ahead of making the investment. The best advice is to hire a tax advisor before you put the money into the US.
There is a tax trick called the Portfolio Interest Exemption, which may help avoid the 30 per cent withholding tax on passive income. Under this exemption, a foreign investor can lend money to the US entity with terms that instruct repayments on the loan to be made outside the US. Interest on that loan is then not subject to US tax and there is no withholding.
Very often you can structure transactions that look like loans into the US but are really disguised equity investments. With proper planning, you can get some nice tax results and we use these quite frequently with foreign clients who have inbound investment into the US.
The end result is that they can have earnings in the US that are not subject to US taxation.
Lebanon – WA Traditionally, we have always had holding companies attracted to Lebanon. There is an added value because of the bank secrecy laws which are still in effect for anyone who is not American. Lately, though, the Lebanese Government has been trying to make it even more attractive for foreign companies to set up in Lebanon. This is aimed, in particular, at those connected to technology or IT sectors by offering a package of tax discounts. Another incentive is to encourage investment is the government’s plan to cover employers’ social security costs (25.5 per cent of taxable salary) with regard to their recently hired employees.
Italy – TF There are ongoing tax incentives being launched by the Italian Government to enhance foreign business investments and reduce the tax burden for businesses. One of the major tax incentives launched by the Italian Government is certainly the Patent Box Regime for R&D companies.
This regime allows R&D companies to remain exempt from tax on 50 per cent of income deriving from the exploitation of selected intellectual property (IP). It also allows R&D companies to remain exempt from tax on capital gains derived from the sale of that IP, provided that at least 90 per cent of the same capital gains are reinvested into other assets of the same type.
At the beginning of the Patent Box Regime, the Government also included trademarks within the spectrum of the eligible IP, but these measures were not aligned with OECD standards. Starting from the tax year 2017, trademarks have been eliminated from the spectrum of the IP eligible for the Patent Box Regime.
The R&D tax credit, which allows companies to benefit from a tax credit equal to 50 per cent of the annual increase in R&D expenses, is another incentive that the Italian Government has enacted to boost the Italian economy.
Finally, based on its electoral program, the new Italian Government has also planned to introduce a flat tax on both business and individuals to be set at a rate of 15 per cent, encouraging entrepreneurship and consumption. It is unlikely, however, that this new flat tax regime will be introduced before 2019/20.
Netherlands – FK The abolition of dividend withholding taxes, designed to encourage holding companies to move to The Netherlands has created political tension. This strategy has led to multinationals such as Royal Dutch Shell and Unilever basing themselves here, but it was not designed for mid-sized enterprises.
The general impression I get is that we are passive in our tax policy due to pressure from the European Commissioner. There is this picture of the Dutch motherland as a tax haven, so we need new ideas to make the Netherlands more attractive for companies to physically move here, rather than use us for international tax planning. Withholding taxes do make it less attractive, but international businesses like Microsoft still use The Netherlands for international tax planning.
We do have an R&D box where income is taxed at lower rates, but it is not much better or worse than other jurisdictions and doesn’t allow for aggressive tax planning.
Wissam Abousleiman (WA) Abousleiman & Co – Lebanon www.irglobal.com/advisor/wissam-abousleiman
Friggo Kraaijeveld (FK) KC Legal – Netherlands www.irglobal.com/advisor/friggo-kraaijeveld
Jacob Stein (JS) Aliant LLP – USA, California www.irglobal.com/advisor/jacob-stein
Tommaso Fonti (TF) Bacciardi and Partners – Italy https://www.irglobal.com/advisor/tommaso-fonti
Todd Skinner (TS) Skinner + Company – USA, Arizona www.irglobal.com/advisor/todd-skinner